Razib Khan One-stop-shopping for all of my content

June 17, 2017

Amazon purchases whole foods and the distribution channel comes to you

Filed under: Amazon,Economics,Whole Foods — Razib Khan @ 8:07 am

The purchase of Whole Foods by Amazon has sent grocery store stocks into tailspin. Could Amazon do to Safeway and Korger what it did to Borders and Barnes & Noble?

Some people have observed that the purchase impacts the nascent grocery delivery sector more than the established supermarkets. That was my first thought. For me Saturday used to involve a trip to Whole Foods. But not anymore. Basically I use Instacart. (I can’t use Amazon Fresh because it doesn’t delivery to where I live. For now….)

Because Amazon is such a monster of a company people are talking about grocery stores as the underdog in this new war. But the reality is that what we think of “grocery store” is something far different from what someone in 1900 would have imagined. Americans today assume that the supermarket is synonymous with groceries. But supermarkets as institutions are economic innovations which date to the 20th century. The rise of the sector by showcasing its pioneering firm is detailed in The Great A&P and the Struggle for Small Business in America. As the title makes clear the rise of supermarkets resulted in a massive creative destruction in the American economy and culture.

Before A&P reimagined the profession being a grocer was a way for working class men to have a job that could support a family and give them some independence. But as the supermarkets cannibalized small grocers, men who had run their own businesses became employees in large corporations. Entrepreneurs became clerks. Creative destruction also worked so that eventually A&P was marginalized by new-model supermarkets that catered to suburban families. Today Walmart and Whole Foods have been attacking the low and top ends of the market and squeezing out smaller players.

Walmart’s battle from the bottom-up seems to have beaten Whole Foods’ premium strategy. Amazon’s purchase makes sense since Whole Foods has some assets major it can bring to the battle, but Walmart scale just too much for them to tackle.

As we all know the retail sector is changing. Half of millennials now buy groceries online at least some of the time. Malls are closing as their anchor department stores struggle. Where would a modern day Tiffany do her tour? Obviously it’s YouTube.

But that doesn’t mean that people won’t venture out. Upscale retail plazas are replacing the role of malls. Independent bookstores are still around, while Borders is gone and Barnes & Noble is a shadow of what it was. The positive aspect of the death of bricks and mortar retail is that we spend less time out and about on errands. Rather, we go out to eat at a restaurant, or meet friends in the park or at a bar. The downside is a smaller and smaller set of firms are dominating the supply chains between producers and consumers. I think Amazon will be targeted by antitrust considerations in the 2020s.

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